Plain English definitions for the financial metrics, tax strategies, loan terms, and operational concepts every rental property investor needs to know. Each entry includes the formula, an example with real numbers, and links to deeper guides where they exist.
NOI divided by property value, expressed as an annual percentage return on an unleveraged basis.
A rough estimate that roughly 50% of gross rental income will be consumed by operating expenses, before debt service.
A back of envelope valuation metric calculated as purchase price divided by annual gross rental income.
The annualized rate of return on an investment over time, accounting for the timing of all cash flows and the final sale
Annual rental income minus operating expenses, before debt service and taxes.
A quick screening rule stating that a rental property should generate monthly rent equal to at least 1% of its purchase
The percentage of gross rental income consumed by operating expenses, before debt service.
Annual return (cash flow plus appreciation plus principal paydown) divided by the total equity you have in a property.
An aggressive version of the 1% rule requiring monthly rent equal to at least 2% of the purchase price.
The portion of monthly rent paid by a Public Housing Authority directly to the landlord on behalf of a Section 8 tenant.
A federal housing assistance program that pays a portion of rent directly to participating landlords on behalf of qualif
The maximum monthly rent a Public Housing Authority will subsidize for a Housing Choice Voucher unit, usually set as a p
A change in rules, policies, or physical access that a landlord must provide to enable a tenant with a disability to enj
The estimated market value of a property after all planned renovations are complete.
Value increase created by renovations, repositioning, or operational improvements, as opposed to market appreciation.
The minimum time you must own a property before a lender will refinance based on its current appraised value instead of
A Limited Liability Company used to hold rental property, providing personal asset protection and tax flexibility.
A legal instrument that transfers whatever interest the grantor has in a property to the grantee, without any warranties
A specialized LLC structure that allows a single parent LLC to contain multiple protected series, each with its own asse
The process of paying down a loan over time through scheduled payments that split between principal and interest.
Replacing an existing mortgage with a new larger mortgage and taking the difference as cash.
The fees and expenses paid at the closing of a real estate transaction, separate from the down payment.
An investment property mortgage that qualifies borrowers based on the property's Debt Service Coverage Ratio rather
NOI divided by annual debt service; how comfortably the property covers its loan payment.
An account held by the mortgage lender that collects monthly payments for property taxes and insurance and pays those bi
The ratio of your outstanding mortgage balance to the current value of the property, expressed as a percentage.
Principal, Interest, Taxes, and Insurance — the four components of a standard mortgage payment.
An insurance premium charged by lenders on conventional mortgages when the borrower puts down less than 20%, protecting
A one time fee charged by a property manager when placing a new tenant, typically one half to one full month's rent
The monthly payment from a property manager to a rental property owner, representing collected rent minus management fee
The monthly fee charged by a property management company for managing a rental property, typically 6% to 12% of collecte
The ratio of a tenant's monthly rent obligation to their gross monthly income, used to screen tenant affordability.
A legally segregated bank account a property manager holds to store tenant rent and security deposits separately from th
The percentage of time a rental property is unoccupied and not generating income.
A tax deferred property exchange under Section 1031 of the Internal Revenue Code that defers capital gains and depreciat
A tax provision that allows investors to immediately deduct a large percentage of certain property improvements in the f
The profit from selling a property above its adjusted cost basis, taxed at either short term or long term capital gains
An engineering based analysis that reclassifies portions of a building into shorter depreciation lives (5, 7, or 15 year
The tax the IRS collects when you sell a rental property, based on the depreciation deductions you previously claimed.
A tax loss generated from a passive activity like rental real estate that can generally only offset passive income, with
A federal tax classification that exempts qualifying taxpayers from passive activity loss rules, allowing unlimited rent
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